Most neurons in peripheral sensory pathways initially respond vigorously when a preferred stimulus is presented, but adapt as stimulation continues. It is unclear how this phenomenon affects stimulus coding in the later stages of sensory processing. Here, we show that a temporally sparse and reliable stimulus representation develops naturally in sequential stages of a sensory network with adapting neurons. As a modeling framework we employ a mean-field approach together with an adaptive population density treatment, accompanied by numerical simulations of spiking neural networks. We find that cellular adaptation plays a critical role in the dynamic reduction of the trial-by-trial variability of cortical spike responses by transiently suppressing self-generated fast fluctuations in the cortical balanced network. This provides an explanation for a widespread cortical phenomenon by a simple mechanism. We further show that in the insect olfactory system cellular adaptation is sufficient to explain the emergence of the temporally sparse and reliable stimulus representation in the mushroom body. Our results reveal a generic, biophysically plausible mechanism that can explain the emergence of a temporally sparse and reliable stimulus representation within a sequential processing architecture.